Meiwa Estate Company Limited FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥58.99B
• Operating Income: ¥7.71B
• Net Income: ¥4.83B
• EPS: ¥205.97

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: A strong FY2026 Q2 with robust top-line growth translating into substantial margin expansion and ROE improvement, albeit with elevated leverage typical for developers. Revenue rose 69.4% YoY to 589.9, driving gross profit to 133.6 and operating income up 185.0% YoY to 77.1. Ordinary income surged 223.2% YoY to 69.9, and net income climbed 193.7% YoY to 48.3, with basic EPS at 205.97 JPY. Operating margin expanded sharply to roughly 13.1% from an estimated 7.8% a year ago, a c. 530 bps improvement. Net margin increased to 8.2% from an estimated 4.7% a year ago, a c. 347 bps improvement, aided by scale and disciplined SG&A (9.6% of sales). Interest expense of 8.21 resulted in net non-operating loss of about 7.2, but operating strength more than offset. ROE reached 12.8% (Net Margin 8.2% × Asset Turnover 0.417 × Leverage 3.73x), well above a typical cost of equity for domestic real estate developers. Cash generation was excellent with operating cash flow at 152.5 (OCF/NI 3.16x), indicating high earnings quality this quarter. Liquidity appears comfortable (current ratio 249%), and cash (280.1) exceeds short-term loans (156.8), lowering near-term refinancing pressure. However, the balance sheet is debt-heavy (D/E 2.73x; Debt/EBITDA 8.47x), underscoring sensitivity to market conditions and interest rates. ROIC is 7.0%, within the sector’s acceptable range, but further improvement is needed to create wider value over the cycle. Effective tax rate was 30.9%, broadly in line with statutory norms. With capex modest at 4.1, the company likely has room to fund dividends (payout ratio 19.4%) from internal cash generation, though full FCF is not computable due to unreported investing flows. Forward-looking, the strong delivery/recognition cycle and cost discipline support the FY outlook, but sustainability hinges on sales pace, construction cost trends, and funding costs. Data gaps (e.g., inventories, dividend cash outflows) limit precision on inventory risk and FCF coverage.

Profitability Analysis

Step 1 (ROE decomposition): ROE 12.8% = Net Profit Margin 8.2% × Asset Turnover 0.417 × Financial Leverage 3.73x. Step 2 (biggest change): The most impactful driver appears to be Net Profit Margin expansion (net income +193.7% vs revenue +69.4% YoY), implying significant operating leverage. Step 3 (business reason): Higher unit handovers and revenue mix likely lifted gross profit, while SG&A leverage (SG&A at 9.6% of sales) amplified operating margin; interest burden remained manageable given EBIT growth. Step 4 (sustainability): For developers, margin spikes around large project deliveries can be lumpy; sustainability depends on the pipeline and construction cost containment—momentum can persist near term if pre-sales are solid, but is inherently cyclical. Step 5 (concerning trends): None visible on costs this quarter; however, financial leverage is high, and any slowdown in sales or rise in funding costs could compress margins. Additional notes: Operating margin ~13.1% vs est. ~7.8% last year (c. +530 bps), Net margin 8.2% vs est. 4.7% (c. +347 bps). EBITDA 78.3 (13.3% margin) indicates low D&A burdens; interest coverage at 9.39x is strong.

Growth Assessment

Revenue expanded 69.4% YoY to 589.9, well ahead of typical market growth, indicating strong delivery timing and potential favorable mix. Operating income rose 185.0% YoY to 77.1, signaling significant operating leverage as SG&A grew far slower than revenue (SG&A ratio 9.6%). Ordinary income (+223.2%) outpaced operating income despite higher non-operating costs, reflecting the magnitude of core earnings improvement. The growth quality is solid this quarter, with OCF/NI at 3.16x suggesting profits were cash-backed, likely due to handover collections. However, developer revenues are inherently volatile due to recognition upon delivery; absent inventory and pre-sales data, visibility into H2 sustainability is limited. Outlook hinges on the sales pipeline, construction cost inflation trends, and mortgage rate environment in Japan (still low by global standards but rising from the trough). If the current pace of deliveries continues and land acquisition discipline is maintained, full-year profit trajectory appears favorable; risks include potential cost overruns and slower sell-through in a softer demand scenario.

Financial Health

Liquidity: Strong. Current ratio 249% and cash 280.1 exceed short-term loans 156.8, providing robust near-term coverage; working capital stands at 772.2. Solvency: Leverage is high with D/E 2.73x (warning threshold >2.0) and Debt/EBITDA 8.47x (above 8.0 warning), typical for developers but still a risk flag. Maturity profile: Noncurrent loans 506.7 vs current loans 156.8 suggest a balanced tenor; near-term refinancing risk is mitigated by cash on hand. Coverage: Interest coverage 9.39x is solid, aided by strong EBIT. Off-balance sheet: No disclosures of guarantees or JVs provided in the data; potential contingent liabilities from project SPVs cannot be assessed due to unreported items. Equity base: Total equity 378.5 (BVPS ~1,614 JPY) provides a cushion, but asset intensity keeps leverage elevated.

Cash Flow Quality

Earnings quality is high this quarter with OCF/NI at 3.16x, indicating profits were backed by cash collections. Operating cash flow 152.5 comfortably covered reported capex of 4.1; financing CF was -93.6, implying net debt reduction or dividend/interest outflows, though dividend cash is unreported. Free cash flow cannot be precisely calculated due to unreported investing CF (notably land acquisitions for developers are often in investing or operating depending on classification), but a proxy OCF–capex suggests ample internal funding capacity. Working capital: The strong OCF likely reflects delivery-related inventory reduction and receivable collections; given developers’ lumpiness, this may reverse in quarters with heavy land purchases or pre-construction phases. No signs of aggressive working capital manipulation are evident from available metrics, but inventories and detailed WC components are unreported, limiting verification.

Dividend Sustainability

Payout ratio is 19.4%, implying a conservative distribution relative to earnings. With OCF at 152.5 and modest capex (4.1), internal cash generation appears sufficient to cover dividends, though full FCF coverage cannot be confirmed due to missing investing CF and dividend cash outflow data. Balance sheet leverage is high, so management may prioritize debt normalization over aggressive distributions if market conditions tighten. Policy outlook: Assuming stable handovers and no significant increase in land banking outflows, current payout looks sustainable; variability in project timing remains the key dependency.

Risk Assessment

Business Risks:

• Project timing risk leading to volatile revenue and margin recognition
• Construction cost inflation potentially compressing gross margins
• Demand sensitivity to mortgage rates and housing affordability
• Sales velocity and cancellation risk for condominium projects
• Land acquisition risk (price competition, potential impairments)

Financial Risks:

• High leverage: D/E 2.73x and Debt/EBITDA 8.47x elevate refinancing risk
• Interest rate risk impacting borrowing costs and buyer financing
• Cash flow lumpiness tied to delivery cycles and land purchases
• Potential covenant pressure in a downturn (coverage could weaken)

Key Concerns:

• Elevated leverage despite strong OCF this quarter
• Non-operating expenses dominated by interest (8.21) reduce ordinary profit buffer
• Data gaps on inventories and investing CF obscure inventory turnover and true FCF
• ROIC at 7.0% is adequate but leaves limited cushion if margins normalize

Investment Implications

Key Takeaways:

• Sharp margin-driven earnings beat with operating margin up ~530 bps YoY
• ROE at 12.8% underpinned by higher net margin and asset turnover, aided by leverage
• Earnings quality strong (OCF/NI 3.16x), supporting balance sheet liquidity
• Leverage remains a key overhang (D/E 2.73x; Debt/EBITDA 8.47x) despite healthy cash
• ROIC 7.0% suggests acceptable but not exceptional value creation

Metrics to Watch:

• Pre-sales/backlog and inventory levels (unreported here)
• Gross margin trajectory versus construction cost trends
• Net debt and debt maturity ladder; interest coverage sensitivity
• OCF sustainability across quarters (delivery vs land purchase timing)
• Selling expense ratio and SG&A discipline as sales normalize

Relative Positioning: Within Japanese residential developers, the company currently shows above-peer growth and cash conversion in the quarter, but carries leverage at the higher end of the typical range; near-term momentum is strong, yet medium-term resilience depends on maintaining sales velocity and managing funding costs.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
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